Five9 Posts 13% Q3 Revenue Growth, Agrees to Buy Level AI for $325 Million

Five9 Inc. (NASDAQ: FIVN) reported 13% year-over-year revenue growth for the third quarter of 2026 and entered a definitive agreement to acquire Level AI for $325 million in cash, combining stronger subscription growth with a significant expansion of its artificial-intelligence capabilities.

Revenue rose to $323 million, up 3% sequentially. Subscription revenue, which accounted for about 83% of the total, increased 16% from a year earlier. Telecom revenue grew 11% and represented roughly 11% of revenue, while professional services revenue advanced 6% and contributed about 6%.

The cloud contact-center software provider reported GAAP net income of $14.5 million, or $0.19 per diluted share, compared with $18.0 million, or $0.21 per diluted share, a year earlier. Non-GAAP net income increased to $63.7 million from $60.6 million, while non-GAAP diluted earnings per share rose to $0.82 from $0.78.

Adjusted EBITDA increased 13% to $81.2 million, representing a 25.1% margin, broadly unchanged from 25.1% in the prior-year quarter and up from 22.4% in the second quarter. Adjusted gross profit rose 11% to $199.4 million, although the adjusted gross margin declined to 61.7% from 62.8% a year earlier. GAAP gross margin was 53.4%, compared with 55.0% in the prior-year period.

Operating cash flow totaled $58.4 million, down 1% year over year, while non-GAAP free cash flow increased 13% to $43.3 million and represented 13% of revenue. Five9 ended September with $697.7 million in cash, cash equivalents and marketable investments. Total debt was $738.2 million, including $747.5 million of principal due in March 2029.

Retention and operating efficiency

Five9’s last-12-month subscription dollar-based retention rate was 109%, up from 107% in both the prior quarter and the year-earlier period. The corresponding retention rate for subscription and telecom revenue was 107%, compared with 106% in the second quarter and 107% a year earlier.

Stock-based compensation expense was $34.9 million, or 11% of revenue, compared with $33.3 million, or 12% of revenue, in the third quarter of 2025. Non-GAAP sales and marketing expense declined to 21.7% of revenue from 22.1%, while non-GAAP general and administrative expense fell to 5.7% from 6.5%. Non-GAAP research and development expense remained at 9.2% of revenue.

Level AI acquisition

Five9 said Level AI’s platform will add capabilities spanning Voice of the Customer, agent assistance, automated quality management and AI workers. The companies have partnered since 2022, with Level AI applications already integrated into Five9’s platform and offered through its CX Marketplace.

Level AI has about $20 million of standalone annual recurring revenue, growing approximately 50% year over year. Five9 said it anticipates a similar growth rate over the next 12 months, excluding synergies. The acquisition is intended to extend Five9’s standalone AI offerings to enterprises using other customer-experience platforms while adding products for its base of more than 4,000 customers.

The purchase will be funded with cash on hand. Five9 expects the transaction to dilute its adjusted EBITDA margin by approximately one percentage point in 2027. Level AI is expected to reach EBITDA breakeven in about six months and become margin-accretive in 2028. The deal was unanimously approved by Five9’s board and is expected to close in 2026, subject to customary conditions.

Fourth-quarter and full-year outlook

Five9 projected fourth-quarter revenue of $328 million to $334 million. It expects GAAP diluted earnings of $0.28 to $0.36 per share and non-GAAP diluted earnings of $0.88 to $0.92 per share.

For full-year 2026, the company forecast revenue of $1.269 billion to $1.275 billion, GAAP diluted earnings of $0.75 to $0.83 per share and non-GAAP diluted earnings of $3.17 to $3.21 per share. The revenue outlook implies about 11% growth at the midpoint, based on figures in the presentation.

The midpoint of Five9’s full-year non-GAAP EPS guidance was revised to $3.19 from $3.26 in August. The company attributed $0.05 of the change to the timing of planned organizational-structure changes and $0.02 to a higher diluted share count resulting from a higher-than-expected share price. The guidance excludes any contribution from the pending Level AI acquisition.

Five9’s previously issued medium-term model calls for 10% to 15% revenue growth and a 25% to at least 30% adjusted EBITDA margin in 2027, assuming stable macroeconomic conditions. The model also anticipates adjusted gross margin of 66% to at least 68% and an ongoing decline in stock-based compensation as a percentage of revenue.

Risks identified by the company include adverse macroeconomic conditions, tariffs, inflation, interest rates, currency fluctuations, global conflicts, slower growth within the installed customer base, competition and uncertainty around the development and market acceptance of AI products. The anticipated benefits, timing and financial effects of the Level AI transaction also remain subject to execution and closing risks.